Keepin' It Real 

Economics, Housing, & Commercial Real Estate Analysis

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  • Alex Pettee, CFA

REITs Recover | Student Housing Sale | Home Sales Surge

Daily Recap

  • U.S. equity markets rebounded Thursday in another choppy trading session after better-than-expected New Home Sales data and hopes of renewed stimulus talks offset lukewarm jobless claims data and coronavirus concerns.

  • Barely avoiding falling into "correction territory" with a late-day rally, the S&P 500 finished higher by 0.3% while the tech-heavy Nasdaq 100 gained 0.4%. The Dow rose 52 points.

  • Real estate equities rebounded amid an otherwise rough week with the broad-based Equity REIT ETF (VNQ) finishing higher by 0.4% today with 13 of 18 property sectors in positive territory.

  • New Home Sales topped estimates, surging 43% in August from last year to the highest annual rate since 2006, another sign that the housing industry continues to lead the post-pandemic economic recovery.

  • Initial Jobless Claims ticked slightly higher to 870k. Continuing Claims, however, decreased to 12.6 million. Since the peak in early May at around 25 million, Continuing Claims have retreated by more than 12 million.

Real Estate Daily Recap

U.S. equity markets rebounded Thursday in another choppy trading session after better-than-expected New Home Sales data and hopes of renewed stimulus talks offset lukewarm jobless claims data and coronavirus concerns. Barely avoiding falling into "correction territory" with a late-day rally, the S&P 500 ETF (SPY) finished higher by 0.3% while the tech-heavy Nasdaq 100 (QQQ) gained 0.4%. Real estate equities rebounded amid an otherwise rough week with the broad-based Equity REIT ETF (VNQ) finishing higher by 0.4% today with 13 of 18 property sectors in positive territory. The Mortgage REIT ETF (REM) gained 0.2% following yesterday's 3.6% decline.

While the late-day rally pulled the S&P 500 out of "correction territory" - defined as a 10% pull-back from recent highs - the Nasdaq remains 11.5% below its recent record-highs in early September. Choppiness this week has been fueled by concerns over the reimposition of lockdown measures in the U.K. and dwindling expectations of a new round of fiscal stimulus following the death of Ruth Bader Ginsburg, though reports today suggest House Democrats may be open to restarting stalled talks. 10 of the 11 GICS equity sectors finished in positive territory today, led by the Utilities (XLU), Consumer Staples (XLP), and Materials (XLB) sectors. 

Homebuilders and the broader Hoya Capital Housing Index were among the leaders today following yet another strong slate of housing data. Today, the Census Bureau reported that New Home Sales topped estimates, surging 43% in August from last year to the highest annual rate since 2006, another sign that the housing industry continues to lead the post-pandemic economic recovery. Earlier this week, the National Association of Realtors reported that sales of Existing Homes rose by 10.5% from last year to the strongest sales pace in 14 years since December 2006. Meanwhile, Pending Home Sales in July were higher by 15.5% from last year. We will publish our updated quarterly report on the Homebuilding sector tomorrow morning. 

While the housing industry has shown continued strength, there are signs that the rebound in labor markets may be losing some steam. Initial Jobless Claims ticked slightly higher to 870k from last week's downwardly-revised 886k and roughly steady with the levels over the last month. Continuing Claims, however, decreased to 12.6 million, and since the peak in early May at around 25 million Continuing Claims have retreated by 12.3 million. The Bureau of Labor Statistics reported earlier this month the U.S. economy added 1.37 million jobs in August - slightly better than economists' estimates for gains of 1.35 million. Most notably, however, the "headline" unemployment rate ticked down to 8.4% from 10.2% in the prior month as the separate BLS Household Survey showed employment gains of 3.76 million jobs in August - the second largest month of job growth in the survey's history.

Commercial Equity REITs

Diversified REIT Preferred Apartment Communities (APTS) jumped nearly 7% today after it confirmed last week's reports that it will sell its student housing portfolio to TPG Real Estate Partners for $478.7M. The eight-property student housing portfolio includes properties at Florida State, Baylor, and Arizona State. Last week, American Campus (ACC) announced that its portfolio is 90.3% leased for the 2020-2021 academic year, a rate far above the potentially catastrophic figures some investors feared given the lingering school shutdowns. As noted in Student Housing REITs: School's Out Forever, students at flagship universities in "college towns" have shown a desire to live on-or-near campus regardless of whether classes are held physically in-session or completed remotely.

Earlier this week, we published Industrial REITs: Virus Exposes Frail Supply Chains. The "hub of e-commerce" and the hottest property sector of the last half-decade, Industrial REITs have been unfazed by the coronavirus-induced pain that has encumbered much of the REIT sector. The dramatic acceleration in e-commerce adoption has pulled forward the "retail apocalypse" trends as retailers divert more of their capital away from malls and into distribution supply chains. While much of the REIT sector was slashing dividends this year, nearly half of industrial REITs have raised dividends in 2020. Rent collection among industrial REITs has averaged more than 97% since April. With the pandemic exposing deficiencies in supply chains, we believe the logistics-boom is back in the early-innings.

Mortgage REITs

As tracked in our Mortgage REIT Tracker available to iREIT on Alpha subscribers, residential mREITs finished higher by 0.8% today but remain lower by 6.3% this week. Commercial mREITs gained by 0.2% today are but remain off by 6.1% this week. Yesterday afternoon, New Residential Investment (NRZ) declared a $0.15/share quarterly dividend, a 50% increase from prior dividend of $0.10, but still below its pre-pandemic rate of $0.50 per share. ARMOUR Residential REIT declared a $0.10/share monthly dividend while PennyMac Mortgage (PMT) declared a $0.40/share quarterly dividend, each in-line with last quarter but below their pre-pandemic rates of $0.17 and $0.47, respectively. Out of the 41 mREITs in our coverage, 31 reduced or suspended dividends, 8 have maintained, and 2 have raised. 

Last week, Hunt Companies (HCFT) became the second mortgage REIT to raise its dividend above pre-pandemic levels by declaring a $0.085 dividend, a 13% increase from its prior dividend of $0.075. HCFT joined Arbor Realty (ABR) as the only mREITs that have increased their dividend in 2020 to levels above 2019 payouts. Last month, we published our Mortgage REIT Earnings Recap where we discussed some of the broader trends in the mREIT industry.

REIT Preferreds & Bonds

As tracked in our all-new REIT Preferred Stock & Bond Tracker available to iREIT on Alpha subscribers, REIT Preferred stocks finished lower by 0.71% today, on average, and underperformed their respective common stock issues by an average of 1.33%. Among REITs that offer preferred shares, the performance of these securities has been an average of 22.20% higher in 2020 than their respective common shares. Preferred stocks generally offer more downside protection, but in exchange, these securities offer relatively limited upside potential outside of the limited number of “participating” preferred offerings that can be converted into common shares.


This Week's Economic Calendar

We'll have a full analysis of this week's busy slate of economic data in our Real Estate Weekly Outlook report published on Saturday morning.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

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